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The Currency Futures Report

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Chinese Equity Correction Sparks Flight to Quality in DX

Thu, Jul 30 2009, 06:24 GMT
by Bob Kozak

Alaron

Dollar Index (DXU9):

The DX opened higher at 79.39 after two of China's largest banks may have reduced lending for the rest of the year, sparking a round of profit-taking in the Shanghai equity markets that carried over to U.S. markets. Despite a weaker than expected Durable Goods report, due primarily to a decline in aircraft orders, ex-transportation orders rose +1.1% in June. Prices rose to a mid-day Hi of 79.81 and drifted to a close of 79.765, up 76.5 tics. The close above the 10-day MA changes the s/t trend to 'positive' w/ improving momentum indicators. Traders will look to see if the 'risk-aversion' continues or abates in over-seas' equity markets.
The direct negative correlation of direction in equity markets vs. direction of the DX can be a solid barometer ahead of the U.S. market open. We will see if there is more short-covering or a better opportunity to sell. A higher open should find Resistance at 80.09 and 80.41, while an open below 79.48 may find Support at 79.15 and 78.54.

Euro Currency (ECU9):

The EC opened lower at 1.4111 and continued to be pressured by profit-taking in equity markets as traders sought the safe-haven of DX. Prices retraced to a mid-day Lo of 1.4008 and hit a day-session Lo of 1.4007, before ending the day at 1.4008, down 169 tics. Will value buyers look for opportunity at these levels or continue to take profit/risk off the table? Keep an eye on Asian markets to see how traders view the landscape. A lower close in Asian markets could change as European markets open and sentiment changes. An increase in 'risk-taking' should help the EC higher, while continued 'risk-aversion' could push prices lower. A lower open may find Support at 1.3944 and 1.3881, while an open above 1.4071 should find Resistance at 1.4134 and 1.4261.

Canadian Dollar (CDU9):

The CD opened lower at .9230 and rose to a morning Hi at our Pivot level of .9236, before following equity markets and commodity prices lower as the DX strengthened. Prices hit a mid-day Lo of .9147 and bounced into the afternoon session. Pressure from a bearish DoE report sent oil prices lower, contributing to the profit-taking. The CD traded around our initail Support level of .9171 throughout the afternoon session, before ending the day at .9162, down 77 tics. The s/t trend remains 'positive' w/ 'over-bot' momentum indicators. Continued weakness in equities and commodity prices will lead to further profit/risk taken off the table, pressuring the CD lower. Higher equity prices or crude prices could find Support for the CD and higher prices. A lower open may find Support at .9118 and .9074, while an open above .9191 should find Resistance at .9235 and .9308.

Published on  Thu, Jul 30 2009, 06:25 GMT